Since January 1st, Austria has had a new corporate form that is particularly aimed at startups. Christof Strasser, founder of the law firm 42law, tested it and is not convinced.
The lawyer Dr. Christof Strasser is familiar with founding startups. He tested the new Austrian company form called FlexKap.
Since January 1st, there has been a new corporate form in Austria, the Flexible Capital Company or Flexible Company, known as FlexKap or FlexCo for short. It was launched by the government to support startups in the Early phase to make it more internationally competitive, including through lower capital expenditure and important changes to enterprise value shares.
The Viennese lawyer Dr. Christoph Strasser is the founder of the law firm 42law. For twelve years he has focused on providing legal advice to young companies and venture investors. His law firm accompanies you from the founding of a GmbH through financing rounds to the exit. On New Year’s Day, Strasser did a self-experiment and founded one of the very first FlexKaps in the country. “To be honest, I was surprised that notaries and courts were well prepared on January 1st and that the process went smoothly,” said the lawyer. Nevertheless, he is not completely convinced by the new form of society. The lawyer identified these advantages and disadvantages.
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FlexKap replaces “foundation-privileged GmbH”
The founding process is practically identical to the other two GmbH forms existed in Austria to date. On the one hand, the “classic” GmbH, which required 35,000 euros in starting capital to found, i.e. the sum of the capital contributions taken over by shareholders, which are anchored in the articles of association and published in the commercial register. There has also been an innovation at the beginning of the year: the share capital has been reduced to 10,000 euros.
The second form was the Austrian counterpart to the German limited liability company. The Austrian version is the “foundation-privileged GmbH” – for this, 10,000 euros of share capital had to be available at the time of founding. The new FlexKap replaces it and has the same minimum share capital.
“The biggest advantage of FlexKap is the easier option for employee participation,” says Strasser. In addition to the classic business shares, FlexCo also has so-called enterprise value shares. Through them, employees can participate in the balance sheet profits or liquidation proceeds – this also includes what the shareholders earn upon exit – without giving them voting rights. These shares must be recorded separately in the partnership agreement, but may not make up more than 25 percent of the share capital.
“Clear plus”: No taxes on company shares
Such company value shares can be issued without the involvement of a notary or lawyer. Unlike before, the issue of shares does not trigger any tax. The shareholders are only taxed upon a sale, for example as part of an exit. “This is a clear advantage of FlexKap,” says Strasser.
In the future, “normal” company shares that are associated with voting rights can also be transferred without the involvement of notaries. However, this requires a “lawyer’s certificate”, a private document with lower requirements – a new concept in the country.
According to Strasser, the third advantage of the new legal form is a few minor simplifications in “housekeeping.” Shareholders’ circular resolutions can now also be passed by email, for example (previously, analogue signatures were required). In addition, shares can have a nominal value of just one euro and you can share your voting rights when voting. This is particularly important in trusts in which one partner holds shares for several other people.
“FlexCo does not bring investors or founders to Austria”
Overall, the lawyer believes that FlexKap is something good for startups. But it is far from being a game changer because: “It will not persuade any international investor to suddenly invest in Austrian startups,” he says.
And what about founders? They’re coming now because of you increasingly to Austria? “A clear no,” says Strasser. “The active change is still happening in the other direction. From Austria to Germany or England, where there are better tax incentives for investors and therefore more capital and a much higher number of quality employees.
In his opinion, the FlexKap is “unfortunately just a smokescreen that has shaped the political debate in Austria in recent years.” According to him, real change in the startup scene would only be possible with more capital. “But that,” says the lawyer, “will only happen when there are clear tax advantages for investors in this country.”
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